Parenting is expensive. The cost of raising a child through the age of 17 is at least $200,000 on average, according to the Department of Agriculture, and it’s always a guessing game when it comes to predicting what expenses will come up in caring for your child. That means that for most parents, any tax breaks they can receive are deeply appreciated.
Luckily, there are lots of options in place for parents in a variety of economic and family situations to receive a financial reprieve during tax season. Educating yourself on all the options and preparing your taxes accordingly can save you thousands. Here are five tax deductions every parent should know about.
1. The Child Tax Credit
The staple tax deduction for parents filing taxes is the child tax credit, which awards you $1,000 in credit per child under the age of 18. This can in and of itself be worth several thousand dollars in savings for some families. Not everyone qualifies - you have to make less than $110,000 annually as a couple, or $75,000 as a single parent, to receive the tax credit. Those making more than that won’t get the deduction.
If your income is less than the total amount of credit you would receive from the Child Tax Credit, you might instead look into the Additional Child Tax Credit. If you earned at least $3,000, you can receive a refundable tax credit instead.
2. Childcare credits and deductions
The Child and Dependent Care Credit applies to parents who have childcare expenses in order to allow them to return to work. Calculated based on your income, how many children you have and how much you spend, the credit can range from about $600 to a little over $1,000 per child. The total cap is $6,000 per family and $3,000 per child, but it can still go a long way towards offsetting the costly expenses associated with childcare.
3. The Earned Income Tax Credit
For working parents who aren’t exactly raking in the big bucks, the federal government does offer a tax credit to offset some of the costs of juggling childcare expenses and taxes. If you have more than three kids, and earn less than $46,997 as a single parent or less than $52,427 as a couple, you can claim this tax credit for a maximum benefit of $6,143. Parents who make more than this won’t be eligible for the tax reprieve, but low-income parents with one or two children can qualify as well.
4. Higher Education Credits
College can be one of the costliest portions of your overall childcare expenses, and the price of sending your kid to higher education is not included in the $233,000 average price tag for raising a child. Most families who want to send their kids to college begin saving as soon as possible - in some cases before the child is even born - to accumulate enough savings to cover tuition, room and board.
But the American Opportunity Credit and Lifetime Learning Credit offer some financial breaks to encourage Americans to seek higher education. If you’re still claiming your child as a dependent after high school graduation, you can look into them. The AOC has a maximum benefit of $2,500 per student per year, and 40 percent of it is refundable for parents who don’t make enough money to otherwise qualify.
5. Pretax accounts
Another great option to keep your tax bill down is to put savings into pre-tax accounts that are legally exempt from being counted as part of your earned income at the end of the year, so long as you commit to using it for particular purposes. This includes getting a free tax consultation and investigating flexible spending accounts for childcare costs, health spending accounts for medical expenses and college 529 plans for tuition, books and other college expenses all allow you the benefit of tucking money away from your final tax bill. Some of these can’t be used in conjunction with others - for example, you can’t use both the flexible spending account and the child care credit - but all of them will help bring your bill down. Talk to an accountant about what the best options are for your tax bill before filing and make sure you’re saving as much as possible this tax season. After all, raising a child is expensive.